Independent music companies are being sucked into the major label ecosystem

No Comments 28 September 2017

Independent music companies are being sucked into the major label ecosystem

By: Paul Pacifico

The idea has very much come of age that artists are able to build independent music businesses as entrepreneurs by plugging in to the global digital music system through a series of service deals that enable them to keep full control of their rights.

But does the sales pitch actually deliver for these self-releasing artists and smaller independent labels? What is the true cost of doing business?

Many calculations in the music industry today are based on a company’s market share, but not enough people recognise that this calculation is often based on the proportion of market share distributed by a company, rather than the actual share of the market for which it owns rights.

This is fine when the value passes through the distributor efficiently and its clients (labels and artists) benefit properly from the full value generated by their work – but there are questions here that need to be answered.

As has been well documented, Spotify is expected to list on the New York Stock Exchange in the coming months. This is expected to generate a sizeable windfall back to the music industry as music companies who picked up equity stakes when licensing the platform in its early days have the opportunity to cash in those holdings by selling them on the open market.

However, as an independent label or self-releasing artist, your choice of distributor could well be the deciding factor in whether or not you get your fair share of that particular pay day as the major labels have taken a tranche of Spotify equity that includes the value of the independent share of market they distribute.

Independents have long signed up to share the proceeds of these sorts of deals with their artists through initiatives like the Fair Digital Deals Declaration (FD3) of 2014.

Pressure from artist organisations such as the Featured Artists Coalition (FAC) has also succeeded in securing commitments from at least Sony and Warner to share the proceeds of the Spotify IPO with artists signed directly to those labels. (Universal is yet to make a public commitment to do the same.)

However, independent labels and self-releasing artists who distribute through majors and whose catalogues make up an important part of the value coming back to the industry are unlikely to benefit as things currently stand.

Artists and Independents using services such as ADA (owned by Warner), The Orchard (owned by Sony) or Caroline (Universal) look like they will miss out – whereas independents who are either direct members of Merlin or use a distributor that is a Merlin member (the independents’ licensing body) will share in the benefits of all of the deal terms with platforms.

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